Stressed Out

It is only days before the 2019 Federal Election, and what many in our industry are waiting to see is what, if anything, the winning party will do to address a relatively new-ish top-of-mind- issue to most Canadians: housing affordability and supply. Across the real estate spectrum, builders to sellers and everyone in between are urging the federal parties to commit to policies that will help remove barriers and reduce the cost of home ownership. First on almost everyone’s list: revise the Office of the Superintendent of Financial Institutions’ (OSFI) mortgage stress test to take into account its impact on different real estate markets across the country.

According to many observers, the past year has shown us that all the mortgage stress test has done is restrain activity in markets like Vancouver and Toronto, taking many homebuyers out of the market because traditional lending markets are closed to them, and therefore leading to a rise in an unregulated lending market, resulting in greater consumer and market risk. Groups like real estate associations from Canada’s largest real estate markets are urging candidates to view the stress test as a flexible policy and adjust it based on changing economic trends and interest rates.

“We believe in responsible lending and regulation, but there’s a balance. The stress test is causing more harm to hopeful home buyers than it needs to. It’s hurting affordability and stifling people’s ability to meet their housing needs,” said Ashley Smith, president of the Real Estate Board of Greater Vancouver. “With increasing pent-up demand and accelerated price growth, recent policies focused on demand such as the mortgage stress test have made home ownership less attainable. Affordability pressures need to be addressed by restoring a 30-year allowable amortization period on mortgages,” said Michael Collins, president of the Toronto Real Estate Board (TREB).

There is also a call that there is too much regulation, at all levels of government, focused on curbing demand and providing “one-size-fits-all” solutions that do not take local market conditions into account. “No two real estate markets are the same. The one-size-fits-all housing policies, like the mortgage stress test, are simply not solutions that will work across our diverse country. In Nova Scotia, transactions through the NSAR MLS System generated an estimated $513 million in spin-off spending last year. This economic impact is recognized by all levels of government, who we encourage to continue working with real estate brokers to ensure that policies encourage growth in our market and make home ownership more affordable and accessible,” said Matt Honsberger, president of the Nova Scotia Association of REALTORS.

Housing suppliers aren’t the only ones calling for meaningful action to increase accessibility. Similar sentiments were expressed by real estate development professionals in the PwC Canada/ ULI 2020 Emerging Trends in Real Estate report. Survey respondents rated construction, material and land costs, along with approval processes, as top development issues in 2020. Many of these are supply-related issues where governments can play a role. There is an opportunity to do more as governments and the real estate industry embrace the mutually-beneficial approaches to housing supply issues through transit-oriented development policies and increased density allowances around transit hubs.

“There is a better way to achieve a responsible use of land that addresses affordability concerns, and it’s not from current attempts, like the stress test, to temper demand,” says Richard Joy, Executive Director, Urban Land Institute (ULI) Toronto. “We need innovative solutions for supply constraints and city building issues. I expect the real estate industry will be waiting to see how future developments will be impacted after Canadians go to the polls in October.”


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